Why does it suck? You are only paying if you are MAKING money, profit, income, Earning, dropping fat stacks, be happy you arent in debt.
It sucks because if I mine just 1 BTC, then, to stay compliant with the law (which would be a nice bonus regardless), I have to report that "income" at its present USD exchange rate, even though:
- I haven't converted it into USD
- I may *have* to convert it just to pay the taxes on it
- it could be worth less when I do convert it, meaning I have to keep records just because of this tiny transaction.
And remember, even if I get bitcoins, that doesn't mean I made a profit! I have to deduct the cost of the mining rig I put together to get that, which (in the case of receiving just 1 BTC) is a lot more than revenue. Now, if the IRS actually allows those deductions, it's not so bad. But really, how much crap do you think you'll have to go through when they see you trying to deduct high-end computing/graphics equipment, and audit you, and you have to convince them the machine just sat in the corner and computed hashes?
Most likely outcome is that they'll declare some arbitrary fraction of its cost to be "personal use" and non-deductible, and then fine you for not guessing that number.
F*** that. From now on, I'll shut up about how many bitcoins I have, and I'll leave it to them to prove I know the trapdoor information about this or that elliptic curve (i.e. the private keys to certain addresses, in case you missed the reference).
EDIT: OTOH, if the IRS decides to be cool and accept payment directly in BTC, that's one more argument the haters can't use
"Bitcoin's stupid because, unlike the dollar, you can't pay your taxes in it." "Actually, you can. See this IRS ruling." "Oh. Nevermind! Wait, I've got another one..."So, you should record taxable income when you mine or receive bitcoins for any purpose at the value of the bitcoins at that time. Then, at the time you sell or use said bitcoins, and they have increased or decreased in value, you would record a capital gain/loss in the extended amount of the difference between the value of the bitcoins at time of receipt, and the fair market value of the goods/services purchased with the same number of bitcoins.
Except, if you just buy Bitcoins, using US dollars, then in that case the BTC shouldn't count as income, right? Because, you have already paid income tax on the US dollars, and now you are just spending them to buy something. At most, you should just have to pay a sales or use tax (or a VAT)...
E.g., if I used USD$100 to buy myself a gift card worth $100 at Borders (say), then the gift card shouldn't count as income.
However, if those gift cards later became rare & valuable collector's items, then I can see paying capital gains on the appreciation in value. Same as for the BTC, if they appreciate. But, you only have to pay capital gains if/when the item is sold. What if the Bitcoins appreciate to the point where I can use 1 BTC to buy a million loaves of bread from a baker who accepts BTC? Then do I have to count the bread so purchased as capital gains in a barter trade?
So, you should record taxable income when you mine or receive bitcoins for any purpose at the value of the bitcoins at that time. Then, at the time you sell or use said bitcoins, and they have increased or decreased in value, you would record a capital gain/loss in the extended amount of the difference between the value of the bitcoins at time of receipt, and the fair market value of the goods/services purchased with the same number of bitcoins.
Say I play World of Warcraft and I kill a boss and get an item worth 10 gold. If the fair market value of that 10 gold is $5, do I have a taxable gain of $5? (As I understand it, the answer in the United States is "nobody knows".)